Make-to-Order WIP and Cost of Sales: You Have Three (Not Two)

by John Jordan, ERP Corp

October 15, 2003

A subtle but important difference in the way you can have the CO module calculate work in process (WIP) and cost of sales (COS) sneaked into R/3 way back in Release 4.0. Thanks to the vocabulary words selected to describe this new option - "Valuated Sales Order Stock with Sales Order Controlling" - few people, even today, understand that it’s there.

A subtle but important difference in the way you can have the CO module calculate work in process (WIP) and cost of sales (COS) sneaked into R/3 way back in Release 4.0. Thanks to the vocabulary words selected to describe this new option — “Valuated Sales Order Stock with Sales Order Controlling” — few people, even today, understand that it’s there.

By “sales order controlling,” the folks at SAP simply mean that when your end users type in and save a new line item in a new sales order, R/3 automatically generates some entries in the CO module that allow the sold item to have the same cost accounting functionality normally available only to production orders. This raises the question of what it would mean to have a new sales order without sales order controlling. This is where things — in a subtle way — get confusing.

If you manufacture products in advance, put them on the shelf, and then wait for customers to call, you use a form of business that in R/3 would not normally have “sales order controlling” active. However, the opposite scenario — your factory does not manufacture anything until you get the exact specifications from the customer (i.e., make-to-order sales) – allows three options: (1) No sales order controlling with valuated stock, (2) Sales order controlling with valuated stock, and (3) Sales order controlling with non-valuated Stock. But, what do these options mean in regards to your WIP and COS automatic accounting?”

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John Jordan

John Jordan is a freelance consultant specializing in product costing and assisting companies gain transparency of production costs resulting in increased efficiency and profitability. John has authored bestselling SAP PRESS books Product Cost Controlling with SAP and Production Variance Analysis in SAP Controlling.